Unwinding Cap-and-Trade Makes Industry Anxious, Could Cost Ontario More Than $4 Billion
Analysts and observers from all sides of the political spectrum are panning Ontario premier-designate Doug Ford’s decision to end the province’s carbon cap-and-trade program as his first order of legislative business, while Ford himself has managed to undercut his campaign trail commitment to lower energy prices before he’s even sworn in June 29.
As soon as Ford announced the carbon pricing rollback last week, reaction began rolling in, with businesses across the province expressing anxiety about the C$2.8 billion in carbon allowances they’d previously acquired, fossil companies Suncor and Enbridge asking pointed questions about the carbon allowances they’d bought under the previous provincial pricing regime, the Conservative-leaning Canadians for Clean Prosperity underscoring the political uncertainties and liabilities Ford is creating, and Ivey Foundation Executive Director Bruce Lourie putting the cost of the decision at more than $4 billion, well above initial estimates that were closer to $2 billion.
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“There is a lot of apprehension, there is concern,” said Lisa DeMarco, senior partner at the law firm of DeMarco Allan LLP. “They’re very anxious to see some assurance that they will be kept whole.”
“They purchased because they figured they were going to need them by the 2020 deadline,” Michael Berends, managing director at Toronto-based cap-and-trade advisers ClearBlue Markets, said of the carbon credits purchased by Canadian fossil companies. “Now they’re being told ‘oh, you can’t expect that.’ Everyone’s scared. These guys want to have market certainty.”
iPolitics cites one industry group that declined to be identified, but noted that Ford’s initial rollback announcement contained “no answers to critical questions” facing industry
“Crucially, the group said, in a climate where businesses are contending with uncertainty in NAFTA talks, new trade tariffs and the threat of more, and the concerns over competitiveness with the U.S., the announcement from Ford only added to the insecurity that businesses are feeling,” the online newspaper notes.
“It’s one more uncertainty that those businesses don’t need, frankly,” the group said.
In a blistering opinion piece for National Observer, the Ivey Foundation’s Lourie says Ford’s decision runs against the current of “economists and sensible corporations” across Canada that support carbon pricing. Taxing carbon pollution “is so blindingly obvious to anyone with even a modicum of economic sense,” he writes. “Unfortunately, economic sense does not drive voters, nor politics. Certainly not the new Ontario government.”
But he warns that “the implications for the Conservatives are serious. Scrapping Ontario’s cap and trade system (we don’t actually have a carbon tax, that was part of the misinformation campaign) will be ‘messy and costly’, according to the Ecofiscal Commission. Recall that Dalton McGuinty cancelled a gas plant for political reasons costing Ontarians up to a billion dollars. And the Tories went to town, for years, like dogs with a bone. That experience will pale by comparison to the political folly of Doug Ford cancelling cap and trade, with early estimates showing a figure that will likely exceed $4 billion in compensation, legal fees, penalties, administrative costs, and who knows what else.”
The existing cap-and-trade regime with California and Quebec will take four years to unwind, Lourie adds, and will affect “the hundreds of major Ontario companies benefiting from the system. Many have already signalled a move out of Ontario into friendlier jurisdictions, taking jobs and investment with them. And these are the companies of the future, but sadly not Ontario’s. Good luck explaining that one next time around to the voters who thought they were getting lower taxes.”
And then, after shuttering consumer and business energy efficiency programs funded by cap-and-trade revenue—which delivered on the least expensive form of electricity “supply” at Ontario’s disposal—Ford was quick to endorse the costliest option in the province’s inventory, doubling down on his campaign promise to keep the aging Pickering nuclear station open beyond its scheduled closure date this August. That pronouncement drew immediate fire from the Ontario Clean Energy Alliance, the group that crunched the numbers to come up with a menu of least- and lower-cost electricity supply options.
“Ford’s decision does not make financial sense for Ontario’s electricity consumers,” wrote OCAA Director Angela Bischoff. “The annual savings from closing the Pickering Nuclear Station would be 183 times greater than the savings from firing Mayo Schmidt, the CEO of Hydro One,” a largely symbolic cost saving Ford had emphasized on the campaign trail.
“Based on an out-of-date 2015 report, which compared Pickering’s costs to those of a natural gas-fired power plant, Mr. Ford asserted that the continued operation of the nuclear station will save Ontario consumers $600 million,” Bischoff wrote. “What Mr. Ford failed to note is that Ontario can lower its electricity costs by $1.1 billion per year by replacing Pickering’s output with lower-cost water power from Quebec.”
Meanwhile, Canadian Solar Industries Association President John Gorman warned that shutting down the province’s Green Ontario Fund rebate program would strand thousands of Ontarians waiting for solar installations, and CBC reported that solar companies were thinking of pulling up stakes and abandoning the province for Alberta.